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Non-Competes & Other Restrictive Covenants: What Employers In PA Need To Know

Article by Courtney Brennan, Esq.

Non-competes and other restrictive covenants are important tools for employers in Pennsylvania. By using these contractual provisions effectively, employers can mitigate the risk of employees taking their proprietary and confidential information and going to work for competitors, and they can gain access to efficient remedies if employees violate the terms to which they have agreed.

3 Types of Employee Restrictions

Broadly speaking, there are three main types of contractual restrictions that employers can use to prevent employees from using their proprietary and confidential information. These are: (i) non-competition covenants, (ii) non-solicitation covenants, and (iii) confidentiality agreements.

1. Non-Competition Covenants

Non-competition covenants restrict employees from working for (or forming a business) that competes for the employer’s customers or clients. While “non-competes” are generally enforceable under Pennsylvania law, employers must be careful to ensure that their non-competition covenants are no more restrictive than necessary.

If a non-competition provision is unnecessarily broad in terms of its geographical scope, if it defines a “competitor” too broadly, or if it is unnecessarily long in terms of duration, it may not withstand judicial scrutiny. In this scenario, the court may “blue pencil” or modify the non-compete so that it is not unduly restrictive on the employee.

2. Non-Solicitation Covenants

Non-solicitation covenants prohibit employees from soliciting the employer’s customers, prospective customers, employees or all of the above. These covenants are generally subject to less scrutiny than non-competes, as they do not have the same degree of impact on former employees’ financial prospects.

3. Confidentiality Agreements

Confidentiality provisions and non-disclosure agreements (NDAs), prevent employees from using or disclosing the employer’s confidential and proprietary information. These agreements can serve a variety of legitimate business purposes and are critical for protecting proprietary information that qualifies as a trade secret under the Pennsylvania Uniform Trade Secrets Act (PUTSA).

Enforcement of Non-Competes and Other Restrictive Covenants

While employers may use non-competes, non-solicitation covenants, and NDAs to mitigate their risk, employers must also be prepared to enforce these provisions. With this in mind, a well-drafted agreement should include provisions regarding enforcement and remedies, and employers should be prepared to enforce their contractual rights when necessary. Depending on the circumstances, this may involve:

  • Sending a cease and desist letter to the employee that refers to (and perhaps attaches a copy of) the employee’s agreement;
  • Preserving evidence of the employee’s breach (i.e., marketing materials, emails sent to customers or other employees, and digital forensic evidence showing that the employee copied confidential or proprietary data);
  • Seeking an injunction or temporary restraining order; and/or,
  • Pursuing litigation and seeking damages if necessary.

Hiring Considerations for Pennsylvania Employers

When hiring new employees, employers should keep in mind that job candidates may be subject to restrictive covenants and confidentiality obligations imposed by their former employers. Employers in Pennsylvania may ask job candidates if they are subject to any restrictive covenants. If a desirable job candidate’s answer is, “Yes,” then employers should take additional steps including (but not necessarily limited to):

  • Having their employment law counsel review the job candidate’s restrictive covenant to assess its scope and enforceability;
  • Determining whether any adjustments to the candidate’s job duties will be necessary (i.e., ensuring that the candidate does not communicate with certain customers or clients);
  • Carefully crafting an offer letter that acknowledges the existence of the candidate’s contractual obligations;
  • Instructing the candidate not to take his or her prior employer’s protected information; and,
  • Explaining to the candidate precisely what conduct is prohibited (and documenting this explanation in writing).